Most small business owners want a health benefits solution that is easy to set up and understand, will cover a wide range of medical expenses, and offer the certainty of costs.
That’s why, for those in the know, entrepreneurs generally do not choose a traditional group insurance plan, but, rather, a Health Spending Account (HSA).
HSAs have been around for many years and are now in place at thousands of small businesses in Canada.
But there are still many entrepreneurs out there who mistakenly think group health insurance is their only option group health insurance is their only option to pay the medical bills that provincial medicare programs don’t cover.
Let's discover why an HSA is the optimal health benefits solution for small business.
What is an HSA?
A Health Spending Account provides an attractive option for eligible (incorporated) small businesses to pay for employee medical expenses on a tax-free basis.
Eligible small business owners who provide HSAs can also deduct their medical and dental expenses from their gross business income, instead of making them a personal expense.
That makes HSAs an extremely cost-effective method of providing or supplementing health and dental benefits.
How do HSAs work?
Health Spending Accounts can be set up through third-party administrators/trustees or insurers that specialize in administering these plans.
Let's assume a small business owner has agreed to fund an HSA for his five arm's-length employees for up to $2,000 a year for each worker.
The employee (or a family member) visits a health practitioner and pays for an out-of-pocket medical expense (like prescription drugs, eyeglasses, or physiotherapy).
The employess then submit their claim online to a third-party administrator.
The administrator ensures the claim is legitimate and that the expense falls within the limit funded by the business. Once it's approved, the administrator reimburses the claimant (employee) for the entire amount.
The employee receives the benefit tax free and the employer gets a 100 per cent tax deduction.
There are very few restrictions as to what can be claimed. Cosmetic procedures are not eligible, for example. This is a significant HSA advantage as compared to traditional insurance plans, which generally have limitations on cost and as to what can be claimed.
Who is eligible?
Any incorporated business is eligible for an HSA, including incorporated businesses with as few as one employee.
What are the benefits of an HSA?
Eligible medical costs are entirely paid for up to the funding limit. There are also no deductibles, co-payments or annual limits on particular kinds of services that some group health plans have.
For employers, HSAs provide cost certainty — they know up front how much their benefit costs will be. And if there are no claims from one employee, the business isn't out-of-pocket any cost (other than the setup fee and annual fee the administrator may charge).
With group plans, there's is usually someone who doesn't like what's covered and what isn't, or doesn't like the limits that may have been imposed. Some employees will want better drug coverage, while others might want better coverage for orthodontic work. With HSAs, each employee is able to choose how to spend their plan dollars.
Another benefit is that people with pre-existing health conditions may find it difficult to qualify for some group insurance plans. With HSAs, that's not an issue — all pre-existing conditions are covered. There is also no age limit.
Related Reading: Health Spending Account for Small Business (Short Video)
Are you a incorporated Canadian business owner? Discover how the Olympia Health Spending Account can provide significant tax savings by downloading our free guide: The Beginner's Guide to Health Spending Accounts.